European reinsurers are approaching a peak in profitability. A new Morningstar report warns that the conditions sustaining record earnings are beginning to shift, as the sector enters the sixth year of a low-catastrophe-loss cycle.
Henry Heathfield, equity analyst at Morningstar, said several years of low catastrophe activity and favourable pricing had lifted margins across the sector. That run is drawing to a close.
"The market looks to be nearing a turning point," Heathfield said. "Reinsurers have been riding a wave of strong earnings, supported by several years of unusually low catastrophe activity and favourable pricing conditions, but those tailwinds look to be fading."
Natural catastrophe cycles have historically lasted around six years from peak to trough. Drawing on Guy Carpenter Rate on Line data and Swiss Re Institute figures, Morningstar shows that reinsurance pricing tends to peak one to two years after catastrophe losses reach their highest point. Property catastrophe pricing is projected to floor around 2028, while revenue growth for property and casualty reinsurers is forecast to bottom around 2027 before recovering.
The pricing retreat is already underway. An Oxbow Partners report from March 2026 found underwriting profit across leading reinsurers reached a decade high of US$14.8 billion in 2024. At the January 2026 renewals, risk-adjusted global property catastrophe rates-on-line dropped 14.7%, the steepest annual fall since 2014, according to Howden Re.
European incumbents Munich Re and Swiss Re saw their combined market share fall from 46% in 2014 to 32% in 2024. Scale challengers including Hannover Re, Everest Re, RenaissanceRe, and Arch Re expanded their share from 22% to 39% over the same period.
Record earnings have left reinsurers with capital reserves well above target ranges, a situation Oxbow Partners described as the conundrum of success.
Reinsurers' combined ratios track the relationship between premiums collected and claims paid. Morningstar anticipates those ratios will deteriorate from January 2027 as large loss ratios climb.
Morningstar attributes part of the coming shift to changing atmospheric conditions. The Oceanic Nino Index (ONI) is moving from a cooler La Nina phase to a warmer El Nino phase, a transition the report links to higher weather-related catastrophe losses.
Heathfield said El Nino conditions and rising loss activity are expected to put pressure on profitability, particularly for reinsurers with higher catastrophe exposure.
Guy Carpenter's May 2026 North America Peril Advisory placed the probability of El Nino conditions at 90% during the August-to-October peak season. The broker cautioned that seasonal storm tallies are a poor predictor of insured losses. Landfalls, affected population centers, and the characteristics of impacted structures are the dominant drivers of claims, not basin activity alone.
That caution is sharpened by recent pricing data. The Guy Carpenter US Property Catastrophe Rate-on-Line Index fell 14% at April 2026 renewals and 15% to 20% at June 2026 renewals. Those declines, driven by record capital levels, raise questions about whether the market has built in adequate buffer for a low-probability, high-severity event.
The Morningstar report also flags a structural concern: NOAA data as of December 31, 2025, shows weather-related catastrophe severity has climbed since at least the 1990s, driven by rising CO2 concentrations and global temperature anomalies.
The International Energy Agency projects low-carbon electricity sources will supply just over half of global electricity within five years. With electricity accounting for only around 20% of total world energy supply, meaningful progress on emissions reduction remains some way off.
Among the four European reinsurers covered in the report, Morningstar identifies SCOR as the top pick, citing the French reinsurer's limited natural catastrophe exposure.
Jean-Paul Conoscente, chief executive officer of property and casualty at Scor, said on the company's third-quarter 2025 earnings call that Cat XL represents only 10% to 12% of total premium income.
The sector-wide picture is one of tightening conditions. Fitch Ratings maintained a deteriorating outlook for global reinsurance as of March 2026, noting combined ratio guidance for property and casualty reinsurance stands at around 85% for 2026, compared with 94% at the previous cycle peak in 2013.
Large loss events, Fitch said, are expected to be the main factor affecting earnings if primary perils return to higher-loss years.
SCOR chief executive Thierry Leger has said the firm intends to remain underweight in NatCat, a position reiterated across investor days and earnings calls from 2023 to 2025. Morningstar's data shows SCOR's earnings were less affected than those of its European peers in peak catastrophe years, with a combined ratio standard deviation of 5.7%, against 8.0% for Munich Re.
The report identifies balance sheet improvement as a priority for SCOR, which it describes as the most leveraged of the four reinsurers covered. Morningstar projects SCOR's net operating cash flow will reach €1.5 billion by 2027, above the company's own guidance of €1.2 billion to €1.3 billion, with the surplus expected to support debt reduction.
The analysis points to a market in transition: a near-term earnings peak for reinsurers, rising loss ratios ahead, and eventual upward pressure on rates as the next catastrophe cycle builds.
